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U.S. GAS: Futures Ease After Thursday's Surge on Storage Data

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--EIA inventory rise smaller than expected

--Thursday's 14.2% price jump most since September 2009

--Prices slip as US May industrial production drops

 

(Updates with cash prices in final paragraph)

 
   By David Bird 
 

NEW YORK--Natural gas futures prices were modestly weaker early Friday, following Thursday's 14.2% surge spurred by a smaller-than-expected rise in U.S. gas inventories.

Amid much head-scratching over the scope of Thursday's 31-cent rise, which was the biggest since January 2010, traders said profit-taking and some concern over an unexpected drop in U.S. May industrial output fueled selling.

July-delivery natural gas futures on the New York Mercantile Exchange were 3.6 cents, or 1.4%, lower at $2.465 per million British thermal units. Prices moved in a range of $2.444 to $2.557 since Thursday's settlement, which was the highest since May 25. The percentage increase on Thursday was the most since September 2009.

The Federal Reserve said Friday that U.S. industrial production dropped 0.1% in May, while a Dow Jones Newswires survey of economists expected a rise of 0.1%. The drop is another sign of sluggishness in the U.S. economy, analysts said.

Jim Ritterbusch, president of Ritterbusch & Associates, an energy advisory group, noted that industrial demand accounts for about 30% of U.S. natural gas consumption. He said it is likely that expectations that the Fed would implement new economic stimulus plans, a notion that drove equities and oil prices higher on Thursday, likely helped the sharp rise in gas demand, as it would boost industrial demand. Consequently, Friday's weaker industrial output showing is bearish for gas prices, analysts and traders said.

Gas storage levels rose by 67 billion cubic feet in the week ended June 8, according to the Energy Information Administration. That was 11% below an expected rise of 75 bcf.

The market shot higher on the news, even as inventory, at 2.944 trillion cubic feet, is at a record high for this time of year and nearly 32% above a year earlier and 29.2% above the five-year level. Despite the large overhang, analysts noted, the size of the gas glut relative to the five-year average has dropped to 666 bcf now from 927 bcf at the end of March.

An unusually warm winter left inventories at record highs and helped push prices to 10-year lows of $1.90/mmBtu in April. Prices have been struggling to recover since, helped in part by modest cuts in output.

The smaller than expected increase may be a sign of stronger utility demand for natural gas, with power generators still appearing to favor burning gas to using pricier coal.

Still, analysts said, the price surge on the data appeared sharply overdone.

The EIA data "in no way justified a 14% gain in natural gas futures," Stephen Schork, analyst at the Schork Group, said in a report. "Then again...natural gas is oversold around $2.200/mmBtu, so a rebound was due… but it was not expected to occur in a single session."

Natural gas for next-day delivery at the benchmark Henry Hub in Louisiana recently traded at $233/mmBtu, according to IntercontinentalExchange, compared with Thursday's average of $2.1938/mmBtu. Natural gas for next-day delivery at Transcontinental Zone 6 in New York traded at $2.48/mmBtu,compared with $2.31/mmBtu.

 

Write to David Bird at david.bird@dowjones.com

 

(END) Dow Jones Newswires

June 15, 2012 10:47 ET (14:47 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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